The report, by the inspector general of the federal Department of Health and Human Services, is dated December 2013, but was released to the public this Monday. It looked at spending on “vacuum erection systems” (VES), manual devices that doctors sometimes recommend as a fallback option for men whose erectile dysfunction doesn’t respond to drugs like Pfizer Inc.’s
/quotes/zigman/238207/delayed/quotes/nls/pfePFEViagra and Eli Lilly & Co.’s
/quotes/zigman/232185/delayed/quotes/nls/llyLLYCialis. Medicare covers the pumps for its beneficiaries after a 20% copayment.

The inspector general’s research found that the pumps sold for an average of about $165 via online retailers. Medicare’s average payment: $361 per pump, after the beneficiary’s share was paid. The report estimates that the program spent a total of $172 million on the pumps between 2006 and 2001, about twice as much as it would have paid at market rates.

Why is Medicare paying the pumped-up prices? The report notes that “because Medicare’s payments are based on historical data, they may become inconsistent with market prices over time.” Jordan Weissman of The Atlantic notes that penis-pump prices have fallen sharply as erectile-dysfunction pills have grown cheaper and more widely used. But Medicare evidently hasn’t adjusted its prices accordingly, which is particularly irritating, because, as the inspector general notes, a previous report pointed out this problem…in 1999.

As Weissman notes, waste in the Medicare system is a serious problem, affecting devices and medication that cost the taxpayer quite a bit more money:

“The reason that Medicare is more efficient than private insurance, usually, is that it has the power to negotiate prices from suppliers. When we deny it that ability, such as with prescription drugs, the problem is far more severe than overpaying for a few vacuum erection systems.”

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Encore looks at the changing nature of retirement, from new rules and guidelines for financial security to the shifting identities, needs and priorities of people saving for and living in retirement. Our lead blogger is editor Matthew Heimer, and frequent contributors include editor Amy Hoak, writer Catey Hill, and MarketWatch columnists Elizabeth O’Brien, Robert Powell and Andrea Coombes. Encore also features regular commentary from The Wall Street Journal retirement columnists Glenn Ruffenach and Anne Tergesen and the Director of the Center for Retirement Research at Boston College, Alicia H. Munnell.